Calgary office market galvanized by lower rents and better incentives

Calgary’s office market sees its strongest activity levels since 2014, a trend fuelled by overall lower rents and a greater assortment of options.

Released earlier this week, the Second-Quarter 2019 Calgary Office Market Report by Avison Young stated that as of the end of June, the city’s office sector posted its fourth straight quarter of positive absorption. These conditions were last seen five years ago.

A significant contributor was the downtown market, which also reported “its fourth consecutive quarter of positive absorption, an occurrence that had not happened downtown for the past seven years.”

Year-to-date, the cumulative absorption for Calgary’s downtown market was at 446,000 square feet. This already outstripped the performance for the whole of 2018, which had around 400,000 sf of positive absorption.

A combination of smaller tenants and high vacancy rates (24.4% as of Q2 2019) has compelled landlords to explore multiple options in terms of rental rates and incentives, Avison Young stated.

“Competitive and creative approaches by landlords are furthering the flight-to-quality across the Calgary office market. Tenancies in class B and C buildings are now able to consider space in better-quality buildings due to lower rent and the increased availability of options,” Avison Young principal and managing director (Calgary) Todd Throndson explained.

“Landlords and tenants are finding a market that offers both sides opportunities to make advantageous deals. Attractive rental rates and inducements are now at levels where tenants can either move into better quality buildings at similar or even lower rates than they are currently paying, or look at early renewals that offer to blend and extend their rates on a reduced financial platform.”

Looking forward to 12 months from now, Avison Young’s most optimistic prediction for Calgary’s office vacancy is at 23.5%, while the most pessimistic is at 26%. The reasonable level would be at 24.8%.

 

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